11 months ago • 1 min
Sometimes it’s nice to take a broad look at what strategists are thinking. The sell side indicator (SSI) tracks the average allocation to stocks that’s recommended by US sell-side strategists (dark blue line), using data from a survey that goes out at the end of every month. The index flashes a “buy” signal when the dark blue line crosses below the green line and flashes a “sell” signal when it crosses above the red line. That’s because those lines represent a rolling (or constantly updating) 15-year look at a standard deviation from the mean – in other words, a significant move toward either buying or selling.
It can be a useful metric: Wall Street's consensus equity allocation has been a reliable contrarian signal over the years. When they’ve moved into “extreme bullishness” (top of the chart), a fall has tended to follow, and when they’ve moved into “extreme bearishness” (bottom of the chart), a rally has typically followed. Currently, the SSI hasn’t fallen enough to cross the extreme “buy” threshold and is still sitting within “neutral territory”, but it’s as close as it’s been to “buy” since 2017.
In the past, when the SSI dipped to current levels or lower, the next 12 months of returns in the S&P 500 were positive 95% of the time. In fact, the median return over those periods was 21%. Now, like any indicator, the SSI won’t catch every rally or decline with perfect precision, and since 2020 investors have had a few curveballs thrown at them. And a totally new market environment can indeed make historical data less reliable. But the SSI is something to keep in mind when deciding what’s next for your own stock allocations.
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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